British expats living in the US classed as non-resident aliens are subject to the same taxes standard US citizens are. However, it’s still important to ensure financial clarity when it comes to a 401k or an IRA, so expats understand any limitations and their rights in terms of contribution. Knowing the answer to “is a 401k considered a pension?” is a crucial part of this, as well as understanding the meaning of a 401k.
Making Contributions To 401k
Your contribution status is dependent on your employment. If you’re self-employed, or you work for a US-based company, then the answer is yes. However, any non-US-based employment does not allow contribution, simply because the option isn’t typically available.
Solo 401k Retirement Plans For Expats
As an expat, you’ll be wondering what qualifying recognised overseas pension schemes are available. If you’re self-employed, a Solo 401k will indeed qualify as this, even though this will change if you return to the UK (a 401k is not recognised by HMRC, so if your plans do change and you return home, it’s important to seek advice). A major benefit of a Solo 401k is that you can choose to make Roth contributions rather than traditional, which are funded with after-tax earnings rather than tax-deferred. The main benefit of Roth contributions is that your funds are allowed to accrue tax-free.
US Tax Implications/Contributions To IRA
When it comes to IRAs, there are two categories: traditional, and Roth. A traditional IRA has limitations in terms of foreign income or housing exclusions: if these are subtracted and any earned taxable income is left over, then the IRA holder can contribute. To understand where you fall in this, it’s best to seek professional guidance to understand the multiple nuances and stipulations.
For Roth IRAs, it’s slightly simpler, with two key areas to be noted: net earned income must be more than zero, and the account holder’s gross adjusted income must be less than $135,000 (unmarried); $189,000 (married and filing jointly) and $10,000 (married and filing separately).
What Savings For Retirement Are Available?
IRAs may be a slightly simpler option for most UK expats, though it’s important that you know where you stand, whether you’re looking at a 401k, a Solo 401k, a traditional IRA or a Roth IRA. Either way, be informed of Self-Invested Personal Pension (SIPP pension) rules to get your taxes filed, and save for your pension correctly.